One to Watch: Saxbys Coffee

The idea that there was a void between small mom and pop coffee shops and Starbucks helped launch the Saxbys Coffee concept in 2005.

“We saw that gourmet coffee was a booming concept, and that Starbucks was creating an industry and really driving up quality expectations,” says Nick Bayer, Saxbys Coffee CEO.

“But we also saw that there were four times more independent coffee shops than Starbucks, so we tried to create a hybrid.”

Bayer says people like to go to coffee shops operated and owned by people in their neighborhood or town, which is why most of Saxbys’ shops are franchised.

“I’ll hear customers say, ‘I love the guy that owns Saxbys,’ but they aren’t talking about me, they are talking about the franchisee,” Bayer says. “In a recessionary economy especially, people like to support local businesses. People will seek us out because they want to support a locally operated coffee shop.”

He says customers who frequent a particular location are often surprised to learn their local Saxbys isn’t the only Saxbys. In fact, there are 16 locations in the Philadelphia metropolitan area and almost 20 more around Washington, D.C.; Southern Ohio; and Dallas.

Saxbys can usually be found in suburban strip centers, sometimes with drive thrus. There are also urban café stores and college locations in libraries, cafeterias, or in private developments near campus. There are also 400-square-foot Saxbys kiosks in train stations, malls, and high-rise office buildings.

“We think it’s reasonable to triple the number of Saxbys in three to five years,” Bayer says. “We’ll grow primarily in markets where we already have the brand, but I also feel like gourmet coffee is needed and desired in many more cities, so we are looking for multiunit operators to start up in other markets, too. It doesn’t help to open a single unit in a new market, so we will come into new markets with multiple locations.”

Bayer says two characteristics that set Saxbys apart from other coffee shops are its taste profile and menu diversification.

“We looked at the coffee business in 2005 and determined that Starbucks coffee was strongly roasted—what we call a West Coast roast—and Dunkin’ Donuts had a lighter East Coast roast,” Bayer says. “We wanted to have something in the middle.”

Saxbys worked with a proprietary roaster until 2009, when it acquired its own roasting facility.

“It took six months of testing and blending to make sure there were no changes,” Bayer says. “We offer about 20 coffees and we matched every single coffee we’d been selling for four years.”

Having its own roasting facility means Saxbys can keep up with trends in coffee, Bayer says. While about 5 percent of the company’s sales are bulk coffee, he says he doesn’t expect that figure to grow much.

“The reason people are coming to us is they like someone else making and serving their coffee,” he says.

As for menu diversification, Bayer says that while coffee and espresso drinks are the backbone of the menu, accounting for about 50 percent of sales, three other product lines round out sales throughout the day. One of these is all-natural frozen yogurt, which was introduced in 2008.

“Frozen yogurt has been a huge success and has helped elongate our day,” Bayer says. “We have a ton of customers who come in for coffee coming back a second time during the day for frozen yogurt.”

The frozen yogurt has been rolled out at 75 percent of Saxbys locations, and all new locations have it, along with a topping station that includes four fresh fruits and 20 dry toppings. Having fresh fruit in stores also enabled Saxbys to upgrade its smoothies.

He says another product that sets Saxbys apart is a “high-quality, made-to-order egg breakfast sandwich,” which has recently been introduced nationwide. Additionally, Saxbys partners with a local baked goods company for pastries in each major market it is in.

Bayer says that while the number of tickets per day has continued to grow through the recession, the ticket average has gone down slightly to a little more than $4. This is true of all stores except those on college campuses, which have gone up slightly.

“We like being on college campuses because we are influencing brand decisions early on,” Bayer says. “For example, a student can go to Saxbys at the University of Pennsylvania, and continue going to Saxbys when they move to Washington, D.C., for a job after graduation.”

A traditional Saxbys is about 1,500 square feet with seating for about 40 guests. Bayer says the coffee seller’s core customer is anyone who is social.

“We attract a wide array of people,” he says. “It’s not as income-driven as you’d think. Our studies have shown that our customers are social people from students to artists to business people.”

Many locations have what Bayer calls “communal tables” that seat eight, and he says these are often the first seats taken.

“We’ll have eight people who don’t know each other sitting together,” he says.